Tanzania - Tanganyka Development Finance Company Limited (TDFL) Project

Document of The World Bank FOR OFFICIAL USE ONLY FILE COPY Report No. 2416-TA TANZANIA STAFF APPRAISAL REPORT OF A FIRST IBRD LOAN TANGANYIKA DEVELOPMENT FINANCE COMPANY LTD (TDFL) June 8, 1979 East Africa Projects Department Industrial Development and Finance Division This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS US$ 1.0 = TShs 8.30 TShs 1.0 = US$ 0.120 GLOSSARY OF ABBREVIATIONS ABADEA Arab Bank for Economic Development of Africa CDC : Commonwealth Development Corporation DEG Deutsche Gesellschaft Fuer Wirtschaftliche Zusammenarbeit (Entwicklungsgesellschaft) mbh EIB European Investment Bank EADB East African Development Bank FMO Nederlandse Financierings - Maatschappij Voor Ontwikkelingslanden N.V. KfW Kreditanstalt fur Wiederaufbau NBC Natinoal Bank of Commerce NDC National Development Corporation NOFC : Nederlandse Overzeese Financierrings Maatschappij N.V. SIDA : Swedish International Development Agency TIB : Tanzania Investment Bank  FOR OFFICIAL USE ONLY TANZANIA TANGANYIKA DEVELOPMENT FINANCE COMPANY LTD (TDFL) STAFF APPRAISAL REPORT Table of.Contents Page No. BASIC DATA i-ii I. THE INDUSTRIAL SECTOR ................ .................. 1 Industrial Strategy ............................... 1 Institutional and Policy Framework ............... . 2 Role of Small-Scale Industries (SSIs) ............ . 3 Role of the Private Sector ..* ..................... 4 Performance and Structure of Output ............. 4 Development Issues ...... ............... 5 Prospects .....o ............. ....................... 6 Bank Group Experience in the Sector .............. . 7 II. THE FINANCIAL SECTOR ......... . . . . . . ............................. . 8 Institutional Structure ..... ...................... 8 Resource Mobilization and Allocation .............. 9 Interest Rates ...... ............. ................. 10 Issues ........ ............... ..................... 10 Bank Experience in the Sector ..................... 11 III. THE INSTITUTION ....... ............................ 11 A. Institutional Aspects ............................. 11 Objectives and Role ...... ..... .................. . 11 Capital and Ownership ..... ................... 11 Board and Management ........... .. ............ 12 Organization and Staff ....................... 12 Operating Policies . ........................... 13 Procedures ................................... 14 Auditors ..................................... 15 Terms and Conditions of Lending ............. 15 B. Operations and Finance ............................ 16 Operations ................................... 16 Resources ...... ............. ................. 17 Portfolio .... ................................. 18 Financial Performance and Situation ..... ...... 19 This report is based on the findings of a mission consisting of Messrs. Tei Mante and Peter Edmonds which visited Tanzania in November 1978. This document has a restricted distribution and may be used by recipients only in the performance of their omcial duties. Its contents may not otherwise be disclsed without World Bank authorization.  Table of Contents (Continued) Page No. C. Prospects ......................................... 20 TDFL's Strategy ........... .............. 20 Forecast Operations .... o .................... 21 Forecast Financial Prospects .............. .. 21 IV. THE PROJECT ...................................22 A. Description, Objectives and Justification ....... 22 B. Costs and Financing ................................ 22 C. Terms and Conditions of the Proposed Loan ......... 23 D. Project Implementation ............. .. ............. 24 E. Benefits and Risks ............................... 25 V. RECOMMENDATIONS AND AGREEMENTS REACHED ........... ..... 25 LIST OF ANNEXES ANNEX 1 Structure of Output and Employment in Large-Scale Manufacturing in Tanzania 2 Interest Rate Structure in Tanzania 3 TDFL: Summarized Income Statements (1974-78) 4 TDFL: Summarized Balance Sheets (1974-78) 5 TDFL: Past and Projected Operations (1962-83) 6 TDFL: Projected Income Statements (1979-83) 7 TDFL: Projected Balance Sheets (1979-83) 8 TDFL: Projected Sources and Uses of Funds (1979-83) 9 TDFL: Financial Ratios (1974-83) 10 TDFL: Projected Schedule of Disbursements of Proposed Bank Loan 11 Selected Documents and Data Available in the Project File  TANGANYIKA DEVELOPMENT FINANCE COMPANY LTD (TDFL) BASIC DATA (March 31, 1979) 1. Date of Establishment: December 1962 2. Capital Structure: Authorized: Shs 145 million consisting of (a) 6 million ordinary shares of Shs2O.0O each (b) 1.25 million ordinary "A" shares of Shs2O.OO each without voting rights in General Meetings. Issued Paid uP No Amount % No Amount % (In millions) (In millions) Shs Shs TIB (Tanzania) 1.5 30.0 30 0.75 15.0 28 CDC (UK) 0.5 10.0 10 0.50 10.0 18 DEG (West Germany) 1.5 30.0 30 0.50 10.0 18 FMO (Netherlands) 1.5 30.0 30 1.00 20.0 36 5.0 100.0 100 2.75 55.0 100 All issued shares are ordinary shares. 3. Operations 1962-1974 1975 1976 1977 1978 TOTAL TShs Millions Net Approvals Loans 82.9 23.9 25.6 38.5 41.0 211.9 Equity Investments 21.7 6.9 3.4 7.1 16.4 55.5 104.6 30.8 29.0 45.6 57.4 267.4 Disbursements Loans 70.7 5.8 9.2 14.4 39.2 139.3 Equity Investments 20.5 0.2 8.4 8.8 9.4 47.3 91.2 6.0 17.6 23.2 48.6 186.6 4. Financial Results and Position Results (Shs 000's) 1974 1975 1976 1977 1978 Gross Income 5,465 8,376 9,989 12,084 14,440 Net Profit (loss) 656 639 2,042 1,096 1,486 Net Profit as % of Average Total Assets 1.0 0.8 2.4 1.1 1.1 Net Profit as % of Average Net Worth 1.6 1.6 5.0 2.6 3.6 Position (Shs million) Total Assets 73.7 81.5 89.1 115.0 156.3 Total Portfolio 72.1 73.9 84.6 99.4 139.5 Net Worth 40.6 40.7 41.5 41.6 41.9 Long-Term Debt/Equity 0.7/1 0.9/1 0.9/1 1.5/1 2.6/1 Provisions as % of Portfolio 4.4 7.0 6.7 7.7 6.2  - ii - 5. Resource Situation (as of March 31, 1979) Local Foreign TOTAL In Shs. Idillion Resources: Share Capital 100.0 - 100.0 Reserves and Provisions 12.0 - 12.0 Unsecured Income Notes 80.0 - 80.0 Secured Loans 10.0 - 10.0 CDC Loan - 23.7 23.7 EIB Loan - 28.1 28.1 202. 51.8 253.8 Uses Fixed Assets 16.2 - 16.2 Loan & Equity Portfolio 128.9 32.0 160.9 Undisbursed Commitments/Approvals 49.6 51.7 101.3 T 0 T A L: 194.7 83.7 278.4 Surplus/(Gap) 7.3 (31.9) (24.6) 6. Lending Terms Interest rate: 11er p.a on straight loans, and 12g p.a. on income notes and preference shares. Commitment Charge: 1% p.a. on undrawn loan balances. Appraisal/investigation fee: 1% of total investment. Repayment period: Range from 5 years to 15 years. Exchange Risks: Passed on to subborrowers on existing EIB Loan, and CDC Loan.  THE INDUSTRIAL SECTOR 1/ Industrial Strategy 1.01 After gaining independence in 1961, Tanzania adopted an industrial strategy which aimed at increasing domestic production through import substi- tution, relying mainly on private foreign investment. The Arusha Declaration of 1967 charted a completely new course for Tanzania based on socialism and self-reliance. It involved the transfer of ownership and control of a number of large enterprises from the private to the public sector and sought to in- crease the rate of employment growth and improve the income distribution between urban and rural areas. Henceforth, most major industries would be publicly owned and most new investments would be in the public sector. 1.02 The Government's present strategy towards the development of the industrial sector is the Basic Industrial Strategy (BIS) which was adopted in 1974. The two main goals of this strategy are structural transformation and self-reliance. The strategy in its pure form emphasizes the use of domestic resources for domestic needs. Priority will be given to industries which cater for the basic needs of the majority of Tanzanians, such as food, shelter, health, etc. Emphasis is also given to the development of heavy industries, such as iron and steel and engineering. By using local resources and producing for the local market, the BIS envisages a structural transfor- mation of the economy through a system of backward and forward linkages. Although basically oriented towards the domestic market, the BIS also mentions the need to expand export-oriented, agricultural processing industries to increase the foreign exchange earning capacity of the country. Large-scale national enterprises (in the public sector) will operate heavy industries and produce export goods, whereas consumer goods and other day-to-day items will be produced by medium and small-scale industries. 1.03 The potential problems with the BIS are that attempts to restructure the economy too quickly during a period of resource stringency may ultimately frustrate both growth and structural change. A too rapid expansion of the metals sector (especially steel production) may lead to more reliance on external finance, know-how and markets, and the massive investment coordi- nation required by the strategy may overburden the country's already weak planning capacity. Moreover, effective implementation of the strategy will require specific changes in the macro policy framework towards a protection and tariff structure which does not discriminate against backward linkage import substitution, discourage domestic production of capital goods, nor confer high and widely varying effective rates of protection to the produc- tion of consumer goods. 1/ A detailed analysis of the sector is given in "Tanzania Basic Economic Report: Annex V" (No. 1616 TA), December 1977.  - 2- Institutional and Policy Framework 1.04 The institutional structure of Tanzanian industry derives from the system of economic management that has been adopted since 1967. This system, with its emphasis on central planning and direct economic controls to guide the direction and level of investment and the distribution of income between the various segments of the community, has necessitated direct public sector ownership and control of large units in important economic sectors such as manufacturing, banking, insurance, and wholesale trading. Almost all large scale industrial production in Tanzania, therefore takes place in wholly or majority Government-owned companies, operating under the aegis of holding parastatals, which, in turn, are organizationally responsible to parent ministries. 1/ The holding companies are organized along product or process lines (e.g., National Textile Corporation), and serve as planners for, advi- sors to, and supervisors of the operating companies under them. They receive commissions and fees from the operating companies to cover their costs of providing these services. In addition to this parastatal system all District Development Corporations (DDCs), are charged with promoting productive invest- ments in their districts, and may therefore, sponsor and own industrial enterprises. 1.05 As noted, this institutional framework has been designed to enable Government control over sectoral investment and production activities which are considered of national importance. In the investment area, attempts are made to exercise this control through centralized approval of projects and allocation of finance. Thus, although new project ideas in the public sector may originate from the parent ministry, holding company, operating company or any other national agencies concerned with industrial development, approval of all investments is required at some stage by the Economic Committee of the Cabinet. In cases where funds for a project would require budgetary alloca- tion, as is the case for all Government equity contribution to projects, parliamentary approval is also required as part of the annual budget approval exercise. Project preparation and appraisal is mostly done by the holding parastatals with the aid of external consultants in most cases. 1.06 At the same time that this institutional structure was being set up, policies were introduced to facilitate and reinforce central planning and control. In the macro area, a system of comprehensive import licensing is operated by which Government, through parastatals, determines what industrial goods are to be imported. A system of annual foreign exchange allocations aims at ensuring that foreign exchange is only available for such approved imports. In addition, a system of protective import duties exists to protect local producers. Wage scales are set by the Standing Committee on Parastatals (SCOP) and conditions of service in all parastatals have been standardized; salary levels being similar to those obtained in the civil service. Govern- ment policy also aims at worker participation in management decisions. Prices 1/ As of June 1977, there were 97 operating companies under 17 holding parastatals, reporting to 4 operating ministries involved in industrial development.  - 3 - of industrial output are controlled, along with all other prices, by a National Price Commission, which has been using a cost plus price system for setting the ex-factory prices of locally produced goods. This central planning and control system has therefore reduced the role of macro incentive tools typical in free market economies in investment and production decisions in Tanzanian industry. In practice the system is faced with a series of problems which are detailed below (para. 1.14). 1.07 Two other institutions are involved with the industrial sector. The National Institute of Productivity, set up in 1967 with ILO's assistance, has been providing consulting and management training services to middle-level managers of parastatal enterprises. In order to provide facilities for indus- trial studies and consultancy, the Government established the Tanzanian Indus- trial Studies and Consultancy Organization (TISCO) in 1976, with financial and technical assistance from SIDA. Although TISCO has the primary responsibility for carrying out consultancy services in Tanzania, foreign consultants have been engaged in areas where TISCO lacks the necessary expertise. 1/ Role of Small-Scale Industries 1.08 On the basis of information available, small-scale industries (SSIs) appear concentrated in those areas normally associated with early industrial- ization, for example grain milling and bakeries, clothing, wood products in- cluding furniture, printing and soap products. Due to the lack of sufficient data, it is difficult to accurately isolate the performance of SSIs; however estimates show that value added by SSIs 2/ in manufacturing declined from 44% in 1966 to 23% in 1974. This appears to be due to the emphasis placed by the Government on large-scale projects in the public sector and lack of clear policies on the role of private investors. 1.09 The Government has in recent years acknowledged the need to develop SSIs (paragraph 1.02) and established the Small Industries Development Organization (SIDO) in 1973 to have primary responsibility for planning, promoting and providing all kinds of assistance to small-scale industries. SIDO has set up three industrial estates for SSIs and has also set up 11 training-cum-production centers for imparting skill and craft training. Its other activities include preparation of feasibility studies, provision of hire-purchase finance, marketing and other technical assistance. The Govern- ment envisages a larger role for SIDO in the development of the SSI sector and has requested the Bank Group to assist SIDO in the matter. A project to meet this request is under preparation. 1/ For example, TIB's Feasibility Studies Unit which was created to channel funds under IDA's Technical Assistance Project has engaged foreign consultants for feasibility and other studies. 2/ Defined as enterprises with less than 10 employees.  -4- Role of the Private Sector 110 In spite of the clear preference for public ownership or control of large scale industry, and the institutional changes which have been imple- mented since 1967 to effectuate this, the role of the private sector in industry remains surprisingly large. In 1974, private production is esti- mated to have accounted for over half of large scale production and nearly two thirds of total manufacturing and handicrafts production, including small scale. This proportion is not expected to have declined significantly since then. 1.11 The level of new private industrial investment did decline after the Arusha declaration of 1967, and many factors were responsible for this. First, although the declaration made it clear that private investment was welcome in unrestricted subsectors, the takeover measures which followed the declaration inevitably created uncertainties among both foreign and local private investors; thus some of those whose enterprises were not taken over voluntarily decided to sell out to Government. Those who continued shelved most of their investment plans. Second, a party 1/ leadership code precludes all party members from holding shares or a directorship in any privately owned company. This effectively arrested the development of indigenous Tanzanian entrepreneurs, since all citizens are encouraged to become members of the party. Third, the bulk of Government institutional support for industrial development was geared towards assisting parastatals. More recently, Govern- ment has clarified, at the highest level, that private sector involvement in industrial development has always been welcome, and has backed it up with issuing licenses etc., to private entrepreneurs. The effect has been an in- crease in the number of investment proposals coming from the private sector. It is expected therefore that the level of private investment in the sector, and the contribution of private enterprises to output will increase. Performance and Structure of Output 1.12 Industry in Tanzania grew fairly rapidly compared to the overall economy since independence in 1961. The share of the manufacturing and handicraft sector which accounted for just under 4% of GDP in 1961, increased to 8% in 1965 and has remained around 10% since 1970. Total manufacturing employment increased from about 28,000 in 1965 to about 85,000 in 1977. Value added in manufacturing grew rapidly at an average rate of 10.8% between 1965 and 1969, but averaged 7.4% between 1970 and 1973. While limitations of sector data prevent any firm conclusions about the causes of this declining growth rate, indications are that there was an increase in the incremental capital-output ratio, implying a lower rate of growth in relation to invest- ment in the latter years. The evidence further suggests that this decline was due to both a shift toward more capital intensive investment, and a decline in the productivity of capital. After virtual stagnation in 1974 and 1975 1/ The Tanganyika African National Union (TANU), which merged in 1977 with the Afro-Sharazi Party of Zanzibar to form Chama Cha Mapinduze (CCM).  because of the economic crisis in those years and its attendant supply prob- lems for industrial inputs and parts, industrial output appears to have recovered, showing a growth rate averaging about 6.4% in 1976 and 5.4% in 19 77. 1.13 Tanzania's industrial struc:ture has undergone a fairly rapid change from the rudimentary structure inherited at independence in 1961 producing a very limited range of goods, to a more diversified structure, producing a larger variety of basic food and non-food consumer goods, inter- mediate goods such as saw-milling and plywood, leather, aluminum re-rolling, chemicals and plastics and some capital goods such as vehicle assembly. Tanzanian manufacturing is still dominated by production of consumer goods for the domestic market. Consumer goods accounted for 71% of output and 68% of employment for manufacturing enterprises with 10 or more employees in 1965. In 1976, the share of consumer goods to total output and employ- ment was 50% and 69% respectively. Development Issues 1.14 As may be expected, the institutional and structural changes that have been taking place in Tanzanian industry over the past decade, have brought in their wake a number of problems which have affected sectoral performance. First is an apparent decline in labour productivity, particu- larly in the parastatal sector. This can be traced mainly to a lack of a clear-cut micro-incentive framework for parastatal companies. Clear and unambiguous criteria for judging performance are yet to emerge, and managers, even if they are competent, have lacked a system of rewards and penalties for stimulating required performance from workers. The cost-plus price system has also tended to work against cost reduction, and has not therefore discouraged overmanning. Second, there have been excess capacity problems in certain industries because of a tendency to overbuild capacity in relation to supply. This gets exacerbated when shortages of raw materials and spare parts become acute (as is frequent if the foreign exchange situation deteriorates). Third, the real rate of return on capital invested in parastatals has been falling, with the result that parastatal surpluses have lagged in relation to the growth of output. This is largely attributed to the decline in parastatal labour productivity. Fourth, the central investment planning system has been ineffective. Originally designed to ensure coordination in the choice of investments to meet overall sector strategy, the system, in practice, has tended to place great focus on the annual budget as a major instrument of control. The planning office has not got the staff to coordinate investment plans of parastatals, and as such most parastatals have been able to plan and undertake investments without much central control. Fifth, because of the uncertainty and fear of takeovers, the resources of the private sector have not been effectively harnessed for sectoral needs. Finally, as discussed in paragraph 1.08, the potential contribution of SSIs, especially to employment creation in the sector, is yet to be realized. 1.15 Government is aware of these problems, and is making efforts to resolve them. It has acknowledged the problems of low labor productivity  -6- and low capacity utilization, and is stressing the need to increase pro- ductivity through a review of the cost-plus pricing system. While decisions on major policy changes relating to incentives, price and import control systems and the control of parastatals will take time because of the import- ance and breadth of the issues, there! are already indications that at the firm level a number of improvements have been made. Some of these improvements are not due to any overall policy directives but are the result of individual initiatives by firms' managers in a more favourable industrial environment. The improvements include some cases of retrenchment in over-manned parastatals, better discipline among workers mainly due to improved relations of the managers with the Labour Union, JUWATA, better worker participation in certain aspects of decision-making, introduction of incentive (in kind) system in a few firms and relaxation of limitations on recruitment of expatriate experts. Regarding capacity utilization, the National Development Corporation (NDC), the largest parastatal holding company, recently implemented the recommenda- tions of a firm of management consultants and has been able to achieve improvement in the operating efficiency of some of its subsidiaries. 1.16 The Bank Group has raised these issues in its discussions with the authorities both within the context of its general economic work in Tanzania and of specific projects in the industrial sector. It has also provided funs under the IDA Technical Assistance Credit for carrying out studies to improve efficiency in the industrial sector. Among the studies currently in progress are (i) capacity utilization studies initiated by the Textiles Corporation in respect of its subsidiaries and (ii) measurement and improvement of productivity studies carried out by TIB with assistance from two experts from the International Executive Service Corps; TIB is also contemplating to engage experts to study inventory control practices in Tanzania and to suggest improvements. 1.17 On the issue of the role of the private sector, the Government has clarified, at the highest level, that the Arusha Declaration did not preclude private investment in industry, and that the private sector would be encour- aged in all areas not specifically reserved for full Government control. This has been followed in practice by greater liberalism in processing of applica- tions for industrial licenses and importation of spare parts and raw materials to encourage the growth of private industries. It may however be necessary in future, to issue a new Guide to Investors clearly specifying policies on price control, import licensing, dividend transfer restrictions, income taxation, etc. Regarding small-scale industries, Government is aware of the unintended restrictions which its policies have placed on their develop- ment, and appears responsive to a specific effort by the Bank Group to assist in reviewing such policies. Prospects 1.18 The Third Five Year Plan (1976-1981), currently under implementa- tion, is the first phase of implementation on the Basic Strategy. Under this plan, the specific objectives are to improve the efficiency and capacity  utilization in the existing industries so as to increase output, to expand and establish new industrial capacity for production for basic needs, and to lay the foundations for the implementation of the Basic Strategy. The targeted growth rate for the sector is 9.3% per annum compared to an overall targeted growth rate of the economy of 6.0%. In line with the important role which industry plays in the plan, a total of Shs 5,147 million, (24% of the total investment allocation in the plan), has been earmarked for public investment in the sector. 1.19 The Ministry of Industries will be directly responsible for imple- menting projects involving T Shs 2,747 million or 53% of the total Government development budget for the industrial sector projects; the remaining 47% will be implemented by other ministries and agencies. TIB is expected to invest 18.5% of the total in the sector. The sub-sectoral allocation of the proj- ected investment is as follows: construction and building materials T Shs 929 million; metalworking, engineering and chemicals T Shs 820 million; textile and garments T Shs 600 million; leather and leather goods T Shs 224 million; and Small-Scale Industries T Shs 178 million. 1.20 The Government's emphasis on productivity, work and discipline (para 1.15) has had the effect of increasing investor confidence in the sector and improving the overall investment climate. Following the Presi- dent's statement late in 1977 encouraging private investors to establish medium- and small-scale industries, there has been an upsurge in investment activity by the private sector. In addition to the public outlays in the Third Five Year Plan, Government expects considerable private investment, especially in the small- and medium-scale industries, to supplement the resources it will provide in meeting the investment needs of the sector. 1.21 During the first two years of the plan, the average growth rates achieved were 5.9% for industry and 5.3% for the overall economy. The drop in coffee prices, Tanzania's major export, has resulted in a marked deterio- ration in the country's balance of payments. Due to the lack of foreign exchange, the Government has been forced to impose restrictions on imports and devalued the Tanzanian shilling by 10% in January 1979. Given the low initial growth rates and the constraints presently facing the sector, it will be difficult for industry to achieve the growth envisaged in the plan. Bank Group Experience in the Industrial Sector 1.22 Apart from financing industrial projects through credit lines to TIB and EADB, the Bank Group presently is financing four projects for a total amount of $143 million. Two investments of $60 million have been made in the textile sector through the National Textile Corporation, first a loan of $15 million to expand an existing operation and second, a loan of $25 million and an IDA credit of $20 million to set up a new integrated polyester textile mill. The Bank also approved two loans totalling $23 million for an indus- trial complex at Morogoro in 1977, wherein a canvas mill and a shoe factory will be set up with the primary objective of exporting their output. Early  this year the Bank Group has approved a loan of $30 million and an IDA credit of $30 million for the Mulfindi Pulp and Paper Project.. The project consists of the establishment of an integrated pulp and paper mill with an initial capacity of 60,000 tons per annum of paper and board as well as 1,400 tons of pulp for sale outside the mill. IDA has also approved a Small-Scale Indus- tries component in its Second National Sites and Services Project ($1.4 mil- lion) to provide assistance to small-scale industries in Tabora and Tanga. The program, which is being administered by SIDO, would provide infrastructure for industrial clusters, credit for equipment and management and technical assistance to selected small enterprises. IFC has recently approved an investment of $1. 8 million in a privately owned soap manufacturing operation and is also looking at other project possibilities. The Bank Group's experi- ence with these projects, which are under various stages of implementation, is generally satisfactory. Only the SSI component in the urban project is experiencing delays in implementation. II. THE FINANCIAL SECTOR Institutional Structure 2.01 In terms of appropriate institutions, Tanzania's financial system is relatively well developed. In addition to the Central Bank, the Bank of Tanzania, there are nine other financial institutions: a commercial bank, four development banks, a savings bank, a housing bank, an insurance company and a national provident fund. 1/ All the institutions are state-owned except for the East African Development Bank (EADB), the majority of whose shares are held jointly by the Governments of Kenya, Tanzania and Uganda, and the Tanganyika Development Finance Corporation (TFDL) which is jointly owned by TIB and bilateral aid agencies of the U. K. , West Germany and the Netherlands. Tanzania has no private capital market and the bulk of equity investments is provided by the Government directly through the budgetary process. 2.02 Six institutions carry out lending operations. TIB, TDFL, EADB, the Tanzania Rural Development Bank (TRDB) and the National Bank of Commerce (NBC) lend to the directly productive sectors whereas the Tanzania Housing Bank (THB) provides funds for commercial and residential buildings, including low-cost housing. TRDB mainly operates in the rural sector and makes short- term loans for seasonal inputs and medium- and long-term loans for machinery, transport, storage and livestock. Other short-term funds for working capital are provided by NBC. Most of NBC's loans are extended to industry and mining, and to the marketing of agricultural products. 1/ A Summary of the activities of these institutions is available in the Project file.  - 9 - 2.03 Medium- and long-term financing for the modern sectors of manufac- turing, agro-business, tourism, transport, etc. is provided by EADB, TDFL and TIB. Although there is a limited overlapping of functions among these three institutions, their respective roles are well defined and there is no costly duplication of effort. EADB's charter does not authorize it to make more than 3& 75% of its investment in Tanzania. Moreover, EADB's role has diminished considerably because of the uncertainty surrounding its future after the dissolution of the East African Community. TDFL provides funds mainly to medium-size, private enterprises. Although TIB has increased its lending to the private sector, it has concentrated on large-scale enterprises. In FY 1978 the average size of a TIB loan was T Shs 13 million (for private sector loans, T Shs 10 million) compared to T Shs 2 million (T Shs 2.9 mil- lion for both loans and equity and investments) for TDFL. Moreover, TIB owns 30% of TDFL's shares and has two directors on its board and thus helps to coordinate the operations of the two organizations. Resource Mobilization and Allocation 2. 04 Mobilization of savings from the public is carried out by five institutions, namely, NBC, THB, Tanganyika Post Office Savings Bank (TPOSB), the National Insurance Corporation (NIC), and the National Provident Fund (NPF). NBC, THB and TPOSB, with branch networks, mobilize savings through deposit accounts. NBC is the most important mobilizer of savings in Tanzania. As of December 31, 1977 its total deposits exceeded T Shs 6.2 billion. THB had deposits of T Shs 226 million at the end of 1977 and TPOSB had mobilized deposits of T Shs 118 million as of March 31, 1978. 2.05 Tanzania has a high level of savings compared to its income level. The share of domestic savings to GDP has fluctuated around 17% since the mid- 1960's, except during the economic crisis of 1974/75, when it fell to around 8%. The Government has been able to mobilize domestic resources through a combination of highly progressive direct taxes and proportional or moderately progressive indirect taxes. The share of Government recurrent revenue to GDP averaged about 20% in 1977. With the emergence of public enterprises as a result of the Arusha Declaration, the parastatal sector was looked upon as the major saving entity in the country. The performance of this sector, with the exception of the financial parastatals, has however, not been up to expectations. The Bank's Basic Economic Report concluded that, while interest rates will remain less important in resource allocation in Tanzania's command economy than in less controlled economies, they could still play a role on the mobilization side. It therefore recommended a more active interest rate policy to stimulate savings particularly from the private sector. The interest rate on deposits which varied between 4% and 6. 5% depending on term, was considered low in the light of the inflation rates which, measured by the GDP deflator, ranged between 14.5% and 16.2% during 1975 - 1977. Similarly a case was made for increasing the lending rates of the financial parastatals, which had a proven record of being better savers than other parastatals, to enable the former to generate more surpluses.  - 10 - 2.06 The Government's role in allocation of resources is more important than in resource mobilization due to the centralized investment decision- making. Allocations from the development budget are made to parastatals annually in accordance with the Third Five-Year Plan targets. However, the Government is able to influence resource mobilization from the parastatal financial institutions by directing them to invest their surpluses in Govern- ment stocks, bonds and Treasury bills. These institutions play an important role in financing public investment in Tanzania. Medium and long-term Government security sales to the financial institutions accounted for 27% of the development budget in FY 1978. 1/ Furthermore, as of March 31, 1978, Government borrowings from the banking system stood at over T Shs 3.1 billion. Interest Rates 2.07 In an effort to revise the overall interest rate structure in the country with a view to influencing resource mobilization and allocation and reflecting Government priorities, the Bank of Tanzania (BOT) directed NBC, THB, TIB and TRDB in May 1978 to adopt a new interest rate structure (see Annex 2) effective July 1, 1978. The new schedule authorizes NBC and THB to increase their deposit rates slightly. It also permits the NBC to increase its rates on loans across the board by 1%. On the other hand, BOT has directed TIB and TRDB to reduce their rates on loans, with the exception of sub-loans made out of foreign credit lines for which the terms and condi- tions of the credit lines would be applicable. While the increase in the deposit rates and the lending rates for NBC are in line with the recommenda- tion of the Basic Economic Report, the reduction in the lending rates of TIB and TRDB is contrary to the Bank's view (see para. 2.08). Issues 2.08 There are two important issues in the Tanzanian financial sector. The first relates to the recent BOT directive to TIB and TRDB to reduce their lending rates to the levels desired by BOT. The Bank's view is that the appropriate lending rate should be determined after taking into consider- ation the existing and projected inflation rates, the rates charged by other financial institutions for similar loans in Tanzania, the need for an ade- quate spread and the opportunity cost of capital. This issue of the lending rates of the financial institutions receiving Bank Group's lines of credit is being discussed with Government and BOT. 2.09 Secondly, because of the unusual risks involved in financing small- scale industries, the high cost of administering such loans and the uncertainty regarding the Government's policies in the sector, the financial institutions have been reluctant in the past to provide short and medium-term financing to the sector. In view of the recent Government interest in accelerating the development of the Small-Scale Industries sector, there is need for the 1/ Loans and grants from external sources accounted for 55% of the devel- opment budget.  - 11 - financial institutions to evolve pragmatic policies and delivery mechanisms designed to assist the sector and to coordinate their activities more closely than in the past. Bank Experience in the Sector 2.10 The Bank has been extensively involved with TIB since 1974. To date the Bank has made one IDA credit and two loans to TIB for a total amount of $36 million. Progress on these projects has been satisfactory and TIB has grown into a well-organized institution and an efficient allocator of medium- and long-term funds to the productive sector. Furthermore, the Bank has made two loans of $23 million to EADB, of which the equivalent of $9 million has been invested in projects located in Tanzania. The Bank is presently expand- ing its role in the sector; in addition to TDFL, TRDB has been appraised for a first line of credit. III. THE INSTITUTION A. Institutional Aspects Objectives and Role 3.01 The Tanganyika Development Finance Company Ltd (TDFL) was estab- lished in 1962 as a private limited liability company under the Tanzania companies ordinance. Its Memorandum of Association lists as its objectives wide ranging activities in the field of promoting and financing development. In practice this has been narrowed down in its policy statement to assisting in the development of Tanzania through "establishment and expansion of com- mercially viable industrial, agricultural, extractive and commercial enter- prises as well as of housing, industrial estates, tourist, commercial hotels, and lodges, provided it can be shown that they are of value to the economy". 3.02 TDFL's main role in Tanzania's economic system is that of develop- ment financier of medium scale privately owned manufacturing enterprises. It is active in promotion of such enterprises through its identification of suitable investment opportunities and through taking the leadership in bring- ing together interested investors, technical partners, and other financiers, both local and foreign. It provides equity financing to supplement invest- ments of project sponsors, or where it is the lead promoter, to serve as a necessary catalyst for attracting others. It is the main institution in Tanzania which provides such equity funds for non-parastatal projects. In addition to this basic role, it has provided on some occasions, co-financing for some larger projects whose financing requirements are too large for either TIB or EADB to finance alone. Capital and Ownership 3.03 TDFL was established with an authorized capital of Shs 35 million under the joint sponsorship of the Tanganyika Government (before union with Zanzibar), Britain's Commonwealth Development Corporation, and the Federal  - 12 - Republic of Germany (through KfW), each of whom subscribed Shs 10 million of the initial share issues. The authorized capital was increased to Shs 60.0 million in 1965 to permit the Netherlands Government, through NOFC, to sub- scribe to Shs 10 million at par, making it a fourth owner. The Tanganyika Government's shareholding was transferred to NDC, and then to TIB; the KfW shareholding was transferred to DEG; and NOFC'c shareholding was transferred to FMO. These together with CDC remain the current shareholders of TDFL. 3.04 The authorized capital of TDFL was increased to Shs 145 million, 1/ consisting of 6 million ordinary shares of Shs 20.00 each and 1.25 million ordinary "A" shares of Shs 20.00 each, in December 1978. The ordinary "A" shares have no voting rights in General Meetings of the Company. Five million of the ordinary shares have been issued at par for Shs 100 million. Of this TIB, FMO and DEG have each subscribed 1.5 million shares for Shs 30 million, and CDC has subscribed 0.5 million shares for Shs 10 million. Foreign governmental development agencies thus hold the majority ownership in TDFL. Board and Management 3.05 Each of the existing four shareholders is represented by two directors on TDFL's Board. The Chairman, a TIB representative, was originally appointed by the Tanzanian Government and has been Chairman since the com- pany's inception. CDC and FMO each have one of their directors resident locally, while the second directors visit Tanzania to attend Board Meetings. DEG's two directors are both resident outside Tanzania. All the directors are experienced development bankers or businessmen who take a keen interest in TDFL's operations. The combination of local and foreign expertise on the Board has also proven to be invaluable to TDFL's operations. The Board meets about four times a year, but TDFL's management is in constant touch with most of the members. 3.06 Under the Memorandum of Association, the Board is responsible for the management of the company, and may appoint one of its members as a Chief Executive. In practice, a General Manager, who is not a Board member, has been delegated the responsibility for the day to day operation of the company. The incumbent, a Tanzanian, has been General Manager since 1974. He has been with TDFL since 1966, and was made a Deputy General Manager in 1970. He pro- vides TDFL with experienced, dynamic and competent leadership. Organization and Staff 3.07 TDFL has an organization structure which is well suited to its size and operations. There are five departments directly under the General Manager. A Finance and Planning and Department, headed by the Financial 1/ In March 1977, a second class of shares, called ordinary "A" shares with no voting right at annual General Meetings was created in the amount of 1.25 million shares of Shs 20.00 each. This was a condition of EIB subscribing to a convertible European unit of Account Bond of Shs 24.00 million equivalent in TDFL.  - 13 - Controller, is responsible for accounting and financial management, disburse- ments and procurement. A manpower Development and Administration Department handles staff recruitment, training and general administration whilst legal and company secretarial services are the responsibility of a Secretarial and Legal Department. An Investments Department is responsible for the supervision of TDFL's portfolio, and an Investments Promotion Department for project identification, preparation and appraisal. 3.08 TDFL is adequately staffed by a small, dedicated, and able group of Tanzanian professionals assisted in key areas by expatriates provided by, or with the help of, the foreign shareholders. As of March 1979, the total professional staff was 21, of which 2 were expatriates. (The financial con- troller, provided by CDC, and a consultant economist to the Investments Department provided by German Aid). In line with projected expansion in its operations, TDFL plans to recruit 29 more professionals by 1983 and a suitable recruitment and training program has been drawn up. Operating Policies 3.09 TDFL's operating policies are contained in a policy statement which has been issued by the Board as a guideline to the management. A copy of this statement is in the project file and agreement was reached with TDFL during negotiations that it will not be materially changed without prior consultation with the Bank. The statement clearly defines the objectives of the company, the powers and limitations of the General Manager, the principles that govern its investments and financial management, and provides a good framework for its operations. 3.10 The statement precludes TDFL from financing projects which do not conform to Government policy, nor purely infrastructural projects like schools or hospitals. Investments would preferably be made in limited liability com- panies, and TDFL seeks to avoid taking a controlling interest, or any interest which would give it primary responsibility for management, in any project. Sponsors are normally required to put up at least 25% of a project's capital costs, and TDFL will not normally provide less than 10% of a projects total capital cost so as to avoid token investments. 3.11 At the suggestion of the Bank the following amendments and addi- tional clauses were introduced in January 1979 by TDFL's Board to permit more flexibility in the size of projects assisted, and to introduce some necessary financial principles. (i) Because of the increasing cost of projects, TDFL's maximum investment limit per project has been revised from Sh 6 million to Shs 12 million. Its minimum limit will still remain at Shs 200,000, and this will permit it to promote and finance, on a selective basis, indigenous Tanzanian entrepreneurs whose projects are at the lower scale of the medium sized enterprise category.  - 14 - (ii) to permit TDFL to increase its promotion role by providing more financial assistance to new entrepreneurs without much capital, the proportion of TDFL's normal maximum contribution to a project's capital cost has been raised from 49% to 60%. This proportion, combined with the normal maximum single investment limit of Shs 12 million will permit it to finance projects with costs up to Shs 20 million (US$2.4 million). This is consistent with its role as a promoter and financier of primarily medium scale projects, and will not expose it to excessive risks. (iii) a final addition is a clause specifying that TDFL will always protect itself against exchange risks. 3.12 In addition to these amendments and additions to the policy state- ment, the Bank has reached agreement with TDFL that its normal total invest- ments in equity will be limited to its own paid up capital plus unimpaired reserves to ensure that borrowed funds are not normally used for equity investments. Procedures 3.13 Identification and Promotion: To identify suitable investment opportunities, TDFL relies both on Government development plans and various sector studies, and on its extensive contacts with the private local business community. This combination of a planning and an entrepreneurial approach has proven successful in yielding projects which conform to Government require- ments and plans, and are at the same time attractive to businessmen. Promotion of these projects is done mainly by the General Manager and the Investments Promotion Manager, with assistance from the staff of the Investment Promotion Department. TDFL also uses the external contacts of its foreign shareholders in investment promotion. 3.14 Appraisal: TDFL's appraisal of the managerial and financial aspects of projects is quite thorough, and its analysis of the demand, marketing and technical aspects are also quite good. An area of weakness is in economic analysis, where it has been relying on a few partial indicators (e.g., employ- ment creation) to determine economic worth. To improve its performance in this area TDFL has reached agreement with the Bank that in future, all non- service projects in which its proposed financial commitment will exceed US$250,000 equivalent will be subjected to an economic rate of return cal- culation. 3.15 Follow-Up: Well established and adequate procedures exist for follow up. Monthly operational and financial reports are required from all projects, and are analyzed for review by an Investments Committee consisting of the professional staff in the Investments Department. Each operating project is visited by a TDFL supervision officer at least twice a year, in addition to the regular involvement in the operations of these projects made possible through its participation on their Boards. Management places the necessary emphasis on project supervision, and the follow up department is projected to receive the largest increase in professional staff through 1983.  - 15 - 3.16 To provide a ready source of reference for appraisal and supervision procedures, and facilitate the training of the new professional staff to be recruited, TDFL has agreed with the Bank that it will prepare an Operations Manual incorporating its existing documents on these subjects and submit a copy to the Bank by December 31, 1979. 3.17 Procurement and Disbursement: TDFL's procurement and disbursement procedures are adequate, well established, and well documented in a Financial Operating and Reporting Procedures Manual. Although sponsors of projects are responsible for procurement of items financed by TDFL, TDFL ensures that such procurement is made on the basis of competitive quotations. Disbursements are made on the basis of the predetermined investment program for each project, and after approval by both the Investments Promotion and Accounts Departments that all preconditions for disbursements have been met, and that sponsors equity have been paid in. Detailed documentation such as invoices are required for these disbursements. Auditors 3.18 The Dar es Salaam office of Coopers and Lybrand Ltd., a reputable international accounting and auditing firm, undertakes the audits of TDFL's annual accounts. The scope of these audits has been adequate as far as the basic financial statements are concerned. At the request of the Bank, the auditors have also started providing supplementary statements on the state of TDFL's portfolio and on arrears of interest and principal on its loans. The first of these statements have been provided for the year ending December 1978. Terms and Conditions of Lending 3.19 TDFL lends for maturities of between 5 to 15 years including a normal grace period of a year, and will not normally provide finance for less than 3 years. Adequate security is taken in the form of mortgage debentures, and TDFL's position as a lender is not normally subordinated to that of any other lender. In rare cases, lending may take the form of income notes or preference shares with or without cumulative dividend and conversion rights. 3.20 TDFL is willing, as a matter of policy, to vary its interest rate depending on the standing of the borrower, the type and duration of the loan, the security offered and whether or not any special guarantees are obtainable. In practice this has rarely been done, and a uniform interest rate has been charged on loans. Its current minimum lending rate is 11.0% per annum for mortgage debenture loans, and 12% per annum for income notes and preference shares. Given domestic inflation rates of 14.5% each in 1975 and 1976, and 16.2% and 12% respectively in 1977 and 1978, and considering that almost all its lending in those years were in domestic currency, this lending rate has not been positive in real terms. The Bank projects however that inflation rates in Tanzania will decline to 10% in 1979, and to 8% by 1980, and 1981 and that international inflation rates would be 6.5% and 6% in 1979 and 1980/81 respectively. TDFL's current lending rates would therefore yield  - 16 - positive real interest rates on both domestic and foreign currency lending during the commitment period of the proposed loan. They are also comparable to the lending rates of TIB and EADB and will provide TDFL with an adequate spread. The Bank has reached agreement with TDFL to maintain this minimum onlending rate of 11.0% per annum. In addition the Bank has reached agreement with TDFL on the establishment of a system of periodic reviews between TDFL and the Bank of this onlending rate. 3.21 TDFL charges a commitment fee of 1% per annum on undrawn loan balances, and an appraisal/investigation fee of 1% on the total financial commitment requested from it. It passes on the full foreign exchange risk on subloans made out of foreign lines of credit to the subborrowers, and has agreed to similar treatment of the foreign exchange risk on the proposed loan. B. Operations and Finance Operations 3.22 Since its inception in 1962 through 1978, TDFL approved a total of Shs 267.4 million in financial assistance to some 87 projects (Annex 5). Initially, being the primary development finance institution in Tanzania, it experienced a steady growth of operations. Its rate of growth was slowed down after the Arusha declaration of 1967 because of the adverse impact the policy pronouncements in the declaration had on private industrial investments. Since 1975, however, TDFL has experienced a fairly substantial increase in operations, reflecting the changed climate for the type of investments it finances. Its approvals in 1975 and 1976 averaged Shs 30 million per year, compared to an annual average of only Shs 8.1 million between 1962 and 1974, and reached Shs 45.6 million in 1977. In 1978, it approved Shs 57.4 million, an increase of over 91% over the 1975 and 1976 average. 1/ This recent significant increase in level of operations has resulted from both an increase in the number of projects assisted (15 in 1976 compared to 21 in 1978) as well as in the average size of its financial assistance per project (Shs 1.9 mil- lion in 1976 compared to Shs 2.7 million in 1978). 3.23 The proportion of equity investments in TDFL's total approvals through December 1978 was 20.8%. While this proportion is rather high for a development bank in Tanzania, it is justified in TDFL's context because of its active role as a lead promoter of projects. In fact, in 1978, equity approvals amounted to 28.6% of approvals, reflecting the fact that TDFL was the lead promoter of three of the nine new projects it approved. 3.24 Although the overall level of TDFL's disbursements has been ade- quate, there is a recent trend of an increasing lag between approvals and disbursements. As of December 1978, 70% of approvals had been disbursed 1/ All these figures are in current terms, but the rates of growth are significantly higher than Tanzania's experiences with inflation, indi- cating substantial growth in real terms too.  - 17 - compared to 87% at the end of 1974. This decline, attributed to a slowdown in preparation of legal documentation by TDFL's external lawyers, is expected to be reversed since TDFL is now using additional firms of lawyers to draft loan and share subscription documents. 3.25 In keeping with its role, TDFL's operations have concentrated on medium scale privately owned manufacturing enterprises. The average project cost of the 66 projects to which TDFL had provided financial assistance as of December 1977, was Shs 16 million, which is medium scale in the Tanzanian context. It has financed some large projects, but these are very few. For example, only 6 out of 43 operating projects on which information on total assets were available as of June 1978 had total assets in excess of Shs 20.0 million (US$2.4 million). Of 87 projects assisted as of December 1978, 86% were privately owned, the remainder were parastatals or cooperatives. The majority of these private companies are owned by local groups, although there are a few majority foreign holdings. An estimated 25% of the capital invested in 66 projects assisted, on which information was available as of December 1977, originated from outside Tanzania. In terms of sectoral distribution, manufacturing activities have received the bulk of assistance, accounting for 75.3% of the cumulative approvals as of December 1978 compared to 13.7% in hotels and tourist projects, 9.6% in agriculture and fishing, 0.9% in property development, and 0.5% in mining and quarrying. In the manufacturing group TDFL is well diversified with general industries, tex- tiles and garments, food and beverages and rubber and plastics products predominating. 3.26 As may be expected from the size and subsectoral distribution of these projects, a majority of them are import substitution in orientation and rely in part on imported inputs. Because TDFL has not been using the economic rate of return criterion in project selection, it is not possible to determine how efficiently the projects assisted have been substituting for imports. Their employment impact has however been significant. Of 66 proj- ects assisted as of December 1977 on which data is available, total investment of Shs 1,043.9 million is estimated to have created employment opportunities for some 25,000 people. This gives an investment cost per job created of US$3,480 at the shadow exchange rate, which is quite low. Resources 3.27 Until March 1977, when TDFL was able to borrow foreign resources from EIB, all its resources were in local currency and were provided in full by the four shareholders. The resource position as of March 31, 1979 is shown in the basic data. Local resources consisted mainly of the Shs 100 million of issued capital and Shs 80 million of unsecured non-cumulative income notes provided in equal amounts each by the shareholders. These income notes are a peculiar form of long term debt with quasi equity features. They bear a maximum interest rate of 8% per annum, but the actual rate payable in any given year is dependent upon the profits available before income note interest. The notes are redeemable in full on December 31, 2000, but can be fully or partly converted to TDFL ordinary shares by the holders if they wish. In  - 18 - addition the subscription agreement specifies certain conditions under which the noteholders can call for an early redemption. These include dissolution of TDFL, default on any covenants under the agreement by TDFL, or national- ization of TDFL by the Government of Tanzania. For purposes of the Loan Agreement with TDFL, the Bank has defined these income notes as long term debt. 3.28 Foreign currency resources consisted of an EIB convertible bond of European Unit of Account (EUA) 2.5 million (about Shs 28.10 million) and a CBC line of credit of Shs 23.7 million equivalent. The Bond is unsecured and bears a non-cumulative maximum interest rate of 5-7/8%; it is redeemable on October 3, 1988. As with the income notes, the actual interest rate payable in any given year will depend on TDFL's profitability. EIB has the option to convert it fully or partly into non-voting shares. The CDC line of credit is at an 8% interest rate and is repayable in equal installments over the last 16 years of a 20 year maturity period. The loan is unsecured. Portfolio 3.29 A summary of TDFL's portfolio as of December 31, 1978 indicating the status of the projects assisted is provided below. Summary Analysis of Portfolio (Amount in Shs Million) Equity Loans Income Notes Total A. Operating Projects No. Amount No. Amount No. Amount No. Amount % Profitable Companies 28 22.4 31 47.0 2 3.5 44 72.9 53 Unprofitable Companies 6 10.0 8 19.8 1 1.3 10 31.1 22 of which; minor problems (4) (6.7) (3) (7.6) (-) (-) (5) (14.3) (10) major problems (2) (3.3) (5) (12.2) (1) (1-3) (5) (16.8) (12) Subtotal 34 32.4 39 66.8 3 4.8 54 104.0 75 B. Projects Under Implementation 11 12.7 9 21.2 1 1.2 11 35.1 25 TOTAL Portfolio 45 45.1 48 88.0 4 6.0 65 139.1 100 3.30 Considering that only 5 out of 65 projects, accounting in amounts for 12% of the portfolio, face uncertain prospects because of major problems, the quality of the portfolio can be said to be fairly good. The problems faced by 4 of these projects stem from fundamental mistakes in project design, while the fifth, a tourist project, is faced with severe management problems. Among the 4, 2 are operating at levels well below their breakeven points because of persistent shortages of raw materials, which were planned to be produced locally. Both are agro-processing projects and rehabilitation efforts on them are in progress. There is a likelihood of TDFL receiving a  - 19 - Government guarantee on its investments in one of them. Of the remaining 2, one is TDFL's only investment in a mining project. There are doubts about the feasibility of this project, and a study is in progress to determine whether it should continue operating or whether it should be liquidated. The second, a tourist hotel, has consistently faced poor demand, and was almost completely burnt down recently. A rehabilitation program is under implementation. Significantly, all 5 projects are non-manufacturing enterprises, and 4 are parastatal projects. It appears therefore that TDFL has been quite successful in its main area of private manufacturing projects. TDFL has taken due account of the status of these projects in making its provisions against the portfolio. Overall, it has written down its investments in these 5 projects by Shs 11.5 million (60% of total investment in them), whilst provisions on other projects amount to Shs 5.6 million. It has however also taken account of increases in the value of its profitable equity investments in determining how much of these provisions to charge against income. Thus Shs 8.4 million, representing portions of TDFL's share of retained earnings and bonus issues reflecting retained earnings, in such equity investments has been offset against the Shs 14.3 million, bringing total provisions against the portfolio to Shs 8.7 million. 3.31 TDFL has succeeded in keeping the arrears on the loan portfolio at a reasonably low level. The total amount of interest and principal in arrears over three months, as of December 31, 1978, was Shs 8.8 million. The principal outstanding in the affected projects was Shs 22.0 million, amounting to 25% of the loan portfolio. Because the projects involved are some of those with uncertain prospects, some rescheduling of repayments may be necessary. Financial Performance and Situation 3.32 TDFL has been a reasonably profitable development bank. Its gross profit averaged 4.2% of its average total assets for the years 1975 through 1978, but mainly because of a high level of provisions, its net profit averaged only 1.4% over the same period. 1/ Partly because of this high level of pro- visions (54% of the profits before provisions for the years 1975 through 1978 were set aside for provisions) and partly because of underutilization of debt financing (long term debt/equity ratios averaged 1.5/1 for the years 1975 through 1978), the return on TDFL's net worth has been modest, with net profit averaging only 3.2% of average net worth between 1975 and 1978. Details of TDFL's income and expenses over the past five years, and relevant financial and operating ratios, are shown in Annexes 3 and 8. An important source of income, in addition to interest and dividends,has been management fees from TDFL's 4 subsidiaries. TDFL has preferred to take its return on investments in these subsidiaries in this form rather than as dividends, because such management fees are tax deductible for the subsidiaries. Even with this approach, the dividend yield on the equity portfolio has been improving. It averaged 9.4% in 1977 and 1978, compared to an average income on the loan 1/ This compares with a gross profit to average total assets of 3.3% for TIB and 2.1% for INDEBANK (Malawi) and a net profit to average total asset ratios respectively of 1.7% and 1.2% over the same period.  - 20 - portfolio of 7.9% for the same period. While administative expenses as a percentage of average total assets have fluctuated between 4% and 2.6% over the past five years, financial expenses have climbed steadily from 3.0% to 4.9%. 3.33 In spite of the modest net profit it has been earning, TDFL has been paying regular dividends since 1975. These payments have yielded an average return of 2.3% on paid up common shares. To enable it to declare these dividends, TDFL has had to obtain a special waiver from the Tanzanian Government on the dividend provisions of the companies act of 1972. Under these provisions a company is prevented from declaring any dividends until its reserves reach a minimum of 25% of its paid up capital. The waivers so far granted to TDFL have restricted it to declare dividends up to 50% of post taxation profits after write offs of bad debts. TDFL has agreed with the Bank to stick to this maximum 50% payout ratio in the future, to permit it to plough back more internal resources for operations. 3.34 Annexes 4 and 8 show TDFL's past balance sheets and relevant ratios on financial situation. The financial situation has been characterized by low current ratios, low long term debt to equity ratios, and a relatively high ratio of provisions to the portfolio. TDFL has been able to draw down on committed resources to finance operational needs at short notice, and hence has adopted a policy of keeping liquid assets at a low level. On leverage, although its articles of association stipulate a maximum long term debt to equity ratio of 3.1, it is yet to approach this limit because it has had to draw down on its equity to finance the relatively large proportion of its operations in the form of equity investments. TDFL has agreed to maintain this debt equity limit at 3.1. For the purposes of this covenant, TDFL's income notes will be considered as long term debt. In addition, the con- solidated debt and equity of TDFL, for purposes of this covenant, will be defined to include the debt and equity of its four subsidiaries. While the level of provisions may appear rather high in relation to the quality of the portfolio, this conservatism is quite prudent given the economic environment in which TDFL operates. Overall, TDFL has managed its finances creditably, and its financial situation remains quite sound. C. Prospects TDFL's Strategy 3.35 TDFL's operations over the coming 3 to 5 year period will be guided by a strategy designed to increase its impact on development. This strategy is incorporated in a strategy paper, a copy of which is in the project file. In keeping with the increasing role that the Government expects the private sector to play in the industrial development of Tanzania, TDFL's strategy will be to expand its promotion and financing activities to meet a greater propor- tion of the needs of the sector. Because the medium size of projects it assists will preclude it from playing a major role in assisting large export oriented projects, it will concentrate its promotion activities in those  - 21 - import substituting industries where medium scale enterprises could be effi- cient producers. Specifically, and in line with Tanzanian's Basic Industrial Strategy, it will actively promote projects which meet basic needs (clothing, construction materials and food), and some basic industries (chemicals, and projects in the metalworking and engineering area). In undertaking these activities, it will seek to diversify the source of its clientela and contri- bute to the development of indigenous private industrialists by assisting, on a selective basis, smaller projects sponsored by such entrepreneurs. It will also consider joint venture projects with the more effective District Develop- ment Corporations. To finance the planned increase in operations, it will seek to diversify its sources of funds. Finally, it will build up the staff and organizational capacity to perform these tasks. This strategy is suitable for TDFL and within its capability to implement. Forecast Operations 3.36 In continuation of the growth process which started in 1975, TDFL expects to attain a level of approvals of Shs 90 million in 1979, and to reach a new annual level of Shs 100 million by 1980. It plans to stabilize and consolidate operations at that annual level through 1983. The proportion of approvals in the form of equity is projected to increase from the average of 21% of total approvals experienced in recent years, to an average of 33% over the next five years because TDFL expects to play an increasing role in pro- moting the projects it will finance. 3.37 To attain this level of operations, TDFL has a long list of project proposals and ideas under study. The majority of these projects are in the manufacturing sector, and involve the types of basic products and processes which can be efficiently undertaken on a medium scale basis. With Tanzania's Basic Industrial Strategy in mind the proposals and ideas include projects that use iron and steel such as bolts and nuts manufacturing, steel rolling, and wiregauze manufacturing; chemical projects such as production of indus- trial alcohol and of carbon dioxide; and construction material projects such as stone quarrying, sawmilling, and manufacture of PVC tiles. In addition to these projects, TDFL expects to receive a constant flow of financing applica- tions from local private investors. Forecast Financial Prospects 3.38 Projected income statements, balance sheets and ratios for TDFL for 1979-1983 are shown in Annexes 6 through 9. The assumptions underlying these projections are in the project file. No significant increases are expected in the rate of return on the total portfolio, but with new income from rental of portions of TDFL's new office building, with continued tight control of expenses, and with a lower level of provisions than in the past, TDFL's profitability is projected to increase slightly. Net profits as a percentage of average total assets are expected to increase gradually from the 1.1% experienced in 1978 to 2.1% by 1983. The return on equity (net worth) is expected to increase, partly because of this increased profit- ability, and partly because of greater use of debt financing, from the 3.6%  - 22 - experienced in 1978 to 5.9% by 1983. Because of the proposed restriction on the payment of dividends however, the dividend yield for shareholders is not expected to top 3.5%. TDFL's financial situation is expected to remain good. The projected debt/equity ratios show that the limit of 3:1 will not be reached in spite of increasing use of debt finance. This is because TDFL will continue to raise large amounts of new equity to finance its expected investments in equity. The liquidity situation is expected to be in line with past experience, and enough cash is expected to be generated internally to service the increased debt. IV. THE PROJECT A. Description, Objectives and Justification 4.01 The project involves provision of a line of credit to TDFL to finance medium scale industrial and related service projects, agro-processing and tourism development projects through 1981. It is designed with two major objectives in mind: (a) to increase the effectiveness of TDFL in resource allocation in Tanzania, by providing it with policy, institutional and operational advice; and (b) to contribute to the foreign exchange resource available for medium sized investment in the sectors involved. 4.02 The main justification for this project is the desire of the Bank Group to enhance the role of financial intermediaries in Tanzania in resource allocation because of their proven relative effectiveness in that area. In addition, TDFL has proven itself an effective institutional source of finan- cial and technical assistance to medium scale private projects. Such projects have contributed, and will continue to contribute significantly to industrial output, value added, and employment. By becoming associated with TDFL at this time through a lending operation, the Bank Group will have an opportunity to assist such projects. B. Costs and Financing 4.03 Between January 1979 and December 1981, TDFL is projected to commit Shs 280 million to projects, broken down as follows: Projected Commitment (Shs million) Foreign Local Total Loans 132 56 188 Equity 64 28 92 Total 196 84 280  - 23 - The estimated 70% foreign component of these commitments represents an aver- aging of the expected direct and indirect import component of subproject expenditures to be financed with TDFL's loans and equity investments. The indirect component will involve such items as locally procured vehicles and construction materials for civil works. 4.04 To finance these commitments the following financing plan is proposed. Financing Plan (Shs Million) Foreign Local Total Total Commitments 196 84 280 Resources Available as of 1/1/79 - 25 25 Resource Gap 196 59 255 New Resources EIB II 50 - 50 IBRD I 91 - 91 Internal Cash Generation - 59 59 141 59 200 Unidentified Finance 55 _ 55 TOTAL 196 59 255 4.05 EIB's second loan is still under negotiations, but is expected to be available in 1979. The proposed Bank Loan will meet about 35% of TDFL's total resource requirements between 1979 and 1981, and about 45% of the foreign resource requirements. In addition to EIB and the Bank, TDFL will need to raise Shs 55.0 million in new foreign resources. In this connection, it has contacted IFC for a possible share subscription, which, if provided, will prove invaluable for financing portions of TDFL's planned investments in equity. Other financiers TDFL plans to contact include the African Development Bank, BADEA and Norwegian, Swedish and Canadian financial and aid institutions. C. Terms and Conditions of the Proposed Loan 4.06 The proposed Bank Loan to TDFL will carry the following terms and conditions: (a) Eligibility: The Loan will be available for financing subloans and equity investments in subprojects in the industrial, transport, agro-processing and tourism sectors.  - 24 - (b) Free Limits: The individual free limit on subloans will be US$250,000 and the aggregate free limit US$3.5 million. Equity investments to be made out of the proceeds of the loan will require prior Bank approval irrespective of the amount involved. This will permit the Bank to review at least 70% of the subprojects to be financed. (c) On-Lending Rate: The on-lending rate will be a minimum of 11% per annum. As mentioned in paragraph 3.20 this is expected to be positive in real terms, give TDFL an ade- quate spread, and is comparable to on-lending rates of similar institutions in Tanzania. The Bank and TDFL will review this on-lending rate periodically to ensure that TDFL continues to lend at a rate which is positive in real terms, yields an adequate spread, and is competitive. (d) Foreign Exchange Risk: The foreign exchange risk on sub- loans will be fully passed on to the subborrowers. For any portion of the loan that TDFL intends to use for equity investments, it will be required to submit at the time the proposed project is presented for Bank approval, a satis- factory plan for covering its exposure to the related foreign exchange risk. (e) Amortization: The amortization will be the aggregate of the amortization schedules for subloans and investments. (f) Debt/Equity Limit: During the life of the Loan TDFL's debt/equity ratio will not exceed the limit of 3:1. D. Project Implementation 4.07 Reporting Requirements: TDFL will submit quarterly reports which will include a summary of operations, financial statements, resource position, statement of loan arrears, and notes on subprojects which are encountering serious operational difficulties. It will also submit audited annual accounts prepared by qualified accountants in accordance with the Bank's requirements for DFCs, within four months of the end of each financial year. 4.08 Procurement: Procurement for the subprojects financed under the Loan will be in accordance with TDFL's existing procurement policy (para. 3.17). 4.09 Disbursement: The proceeds of the Loan will be disbursed for authorized TDFL subloans and investments as follows: (a) 100% of the foreign cost of imported goods; (b) 65% of the local cost of previously imported goods; and (c) 40% of the total cost of civil works.  - 25 - 4.10 The estimated disbursement schedule for the Loan is shown in Annex 10. Disbursements are expected to be completed by December 31, 1983, two years after the completion of commitments. E. Benefits and Risks 4.11 As noted in Chapter I of this report, privately owned medium scale projects have continued to play an important role in Tanzania's industrial sector despite the rapid growth of parastatals. By increasing the resources available for investment in such projects, and by improving the allocation of these resources through the strengthening of TDFL, the project will con- tribute to the growth of industrial output to meet basic needs in Tanzania, and generate significant employment benefits. While it is difficult to quantify these benefits in a rate of return calculation (ref. para. 3.14), the loan of Shs 91 million will, on the basis of the historical average proportion of total project costs that TDFL has financed, lead to a total investment of about Shs 455 million (US$55 million). TDFL's average investment cost per job in the past was US$3,480. Allowing for inflation, and assuming that about 20% of projects to be financed under the loan would be for modernization/ rehabilitation, the Loan would lead to the creation of 6,500 to 7,000 jobs. 4.12 The subprojects to be financed under this project will be exposed to the normal risk that most industrial enterprises face in Tanzania, when foreign exchange resources become scarce and there is a severe cutback on imports of raw materials and spare parts for industrial activities. In addition to this normal risk, the growth of TDFL may place strains on its organization, staffing and procedures and prevent it from being fully effec- tive during project implementation. In this connection, adequate plans have been made to adapt the institution to the expected higher level of investment approvals, and the larger portfolio to be supervised. The implementation of these plans will need to be closely monitored for unforeseen problems that may emerge. V. RECOMMENDATIONS AND AGREEMENTS REACHED 5.01 A Bank Loan of US$11.0 million for TDFL to meet part of its foreign exchange resource requirements through December 1981 is recommended. During negotiations between the Bank and TDFL, agreement was reached on the proposed terms (para 4.06), and the following subjects: (a) that TDFL's policy statement, including the following amendments and additions will not be materially changed without prior consultation with the Bank (paras 3.09 and 3.11); (i) increase in the single maximum investment per project to Shs 12.0 million; (ii) increase of its normal maximum contribution to a projects capital cost to 60%; and  - 26 - (iii) introduction of a clause specifying that it will always protect itself against exchange risks arising out of foreign borrowings. (b) that TDFL's normal total investments in equity will be limited to its own paid up capital plus unimpaired reserves (para 3.12); (c) that TDFL will use the economic rate of return criterion in appraising projects in which its financial contribution will exceed the equivalent of US$250,000 (para 3.14); (d) that TDFL will prepare a satisfactory operations manual and submit a copy to the Bank by December 31, 1979 (para 3.16); (e) that TDFL will restrict its dividend declaration to 50% of after tax profits and after bad debt write offs, until it accumulates reserves up to 25% of paid up capital (para 3.33).  -27- ANNEX 1 TANZANIA Structure of Output and Employment in Large Scale Manufacturing In Tanzania 1972-1976 Absolute Amount (in current terms) (Shs Million) Share Total (%) I. Output 1972 1974 1976* 1972 1974 1976 Consumer Goods 1.533.1 2.044.9 2.639.4 61.3 53.0 50.3 Food Processing 752.9 925.5 1,057.6 30.1 24.0 20.2 Beverages 128.7 178.6 277.5 5.1 4.6 5.3 Tobacco Manufacturing 1.07.6 162.4 232.4 4.3 4.2 4.4 Manufacture of Textiles 429.9 599.9 816.1 17.2 15.6 15.6 Manufacture of Footwear and Other Apparel 114.0 178.5 255.8 4.6 4.6 4.8 Intermediate Goods 711.4 1,406.9 2,026.7 28.4 36.5 38.6 Wood (except furniture) 49.3 63.9 93.2 1.9 1.6 1.7 Furniture & Fixtures 22.8 28.6 34.4 0.9 0.7 0.7 Paper Products, Printing and Publishing 77.3 173.9 239.1 3.1 4.5 4.6 Leather Products 29.6 48.5 61.8 1.2 1.3 1.2 Rubber Products 65.3 141.1 189.3 2.6 3.7 3.6 Chemicals, Chemical Products, Petroleum 230.0 519.9 773.9 9.2 13.5 14.7 Non-metallic Mineral Products 61.6 92.6 119.8 2.5 2.4 2.3 Basic Metals, & Metal Products 175.5 338.4 515.2 7.0 8.8 9.8 Capital Goods 187.8 296.0 428.5 7.5 7.7 8.2 Manufacture & Repair of of Machinery 72.2 102.5 169.0 2.9 2.7 3.2 Assembly & Repairs of Transport Equipment 115.6 192.5 259.5 4.6 5.0 5.0 Other Manufacturing 70.1 108.7 151.6 2.8 2.8 2.9 TOTAL 2,502.5 3,856.5 5,246.2 100.0 100.0 100.0 II_,. Employment Number (in 000's) Share Total (%) Consumer Goods 44.7 48.7 52.4 71.1 69.3 69.4 Intermediate Goods 14.6 17.2 18.5 23.2 24.5 24.5 Capital Goods 2.3 3.1 3.3 3.6 4.4 4.4 Other Manufacturing 1.3 1.3 1.3 2.1 1.8 1.7 TOTAL 62.9 70.3 75.5 100.0 100.0 100.0 Source: Government of Tanzania Economic Surveys: 1975-76 and 1977-78 * Provisional EAPID June, 1979  -28- ANNEX 2 TANZANIA Interest Rate Structure in Tanzania 1976 1977 July 1978 1. Bank of Tanzania Rediscounts and Advances Commercial Bills Crop: 90 days 5.00 5.00 5.00 91 - 180 days 5.00 5.50 5.50 Other: 90 days 5.25-6.00 5.25-6.00 5.25-6.00 91 - 180 days 5.75-6.50 5.75-6.50 5.75-6.50 Treasury Bills (35 days) Rediscounts 4.27 4.27 4.27 Advances 4.77 4.77 4.77 2. National Bank of Commerce Deposits Savings 4.00 4.00 5.00 Fixed up to 91 days - 3.50 3.50 3 - 6 months 4.00 4.00 4.00 6 - 9 months 4.25 4.25 4.25 9 - 12 months 4.50 4.50 4.50 1 - 2 years 5.00 5.00 6.00 2 - 3 years - - 6.50 3 years and above _ _ 7.00 Lending 6.00-10.50 6.50-10.50 7.5-11.50 3. Post Office Savings Bank Deposits Savings 4.00 4.00 5.00 Fixed 1 - 2 years - - 6.00 2 - 3 years - - 6.50 3 years and above _ _ 7.00 4. Tanzania Housing Bank Deposits Savings 4.50 4.50 5.00 Deposit Account 5.50 3.50 5.50 Fixed 1 - 2 years 5.50 6.00 6.00 2 - 3 years 5.50 6.50 6.50 3 years and up - - 7.00 Lending 5.00-10.00 5.00-10.00 5.00-11.00 5. Tanzania Rural Development Bank Short Term Lending 8.50 8.50 7.50 Long Term Lending 7.50 7.50 7.50 - 6. Tanzania Investment Bank 10.00 10.00-11.00 7.5-12.001/ 7. Fast African Development Bank 10.00 11.00 11.00 8. Tanganyika Development Finance Co.Ltd 9.00-9.50 10.00-11.50 11.00-12.00 1/ The July 1978 rates were mandated by the Bank of Tanzania, and are the subject of dispute between it and TRDB and TIB. EAPID June, 1979  -29- ANNM 3 TANGANYIKA DEIVEOPNENT FINANCE COMPANY LTD (TDFL) Summarised Income Statements 1974 - 1978 (Amounts in Shs OOO's) 1974 1975 1976 1977 1978 Income Interest 3,683 4,061 4,849 4,930 5,956 Dividends 1,180 1,069 2,252 3,163 3,535 Other 602 2,646 2,888 3,991 4,949 T 0 T A L: 5,465 8,376 9,989 12,084 14,440 ftPenses Administration 1,543 1,744 2,193 2,584 3,670 Depreciation 96 98 106 97 123 Pinance Charges 1,958 2,667 3,001 3,720 5,850 Provisions for doubtful debts 989 350 510 966 859 4,586 4,859 5,810 7,367 10,502 Profit before tax 879 3,516 4,179 4,717 3,938 Tax 223 1,346 1,637 1,635 1,489 Profit after tax 656 2,170 2 542 3,082 2,449 Provision Against Investment Loss - (2,000) (500)(2,000)(1,000) Profit (Loss) on Sale of Investment - 469 - 14 37 Net Profit 656 639 2,042 1,096 1,486 Less Dividends - 600 1,200 1,000 1,200 Retained Profit 656 39 842 96 286 rAPID June, 1979  -30- AIM 4 TANGANYIXA DRELOPKINT MUNAJBC COOANY LfD (!DFL) 221974.2I= 1976 1917 197 ASSBBS Current Debtors 3,740 3,686 4,148 5,660 7,925 Cash 6 7,610 4,440 10,206 2,957 Other (Mainly Taxation Recoverable) 214 383 333 333 333 3,690 11,679 8,921 16,199: 11,215 Portfolio Equity 19,232 19,051 27,464 35,934 45,140 Loans 52,882 53,597 54,895 58,155 88,415 Income Notes - 1,260 2,260 5,360 5,960 72,114 73,908 84,619 99,449 139,515 Less Provisions 3,158 5,158 5,658 7,658 8,658 Net Portfolio 68,956 68,750 78,961 91,790 130,857 Pixed Assets (Not) 1,078 1,036 1,250 7,011 14,237 Iotal Assets 73,724 81,465 89,132 115,000 156,309 LIABILITIBS AND EQUITY Current Liabilities Creditors 2,026 2,888 2,911 4,956 7,444 Taxation - 1,235 1,508 1,425 948 Current Maturities of Term Debt - - 4,000 4,000 98 Dividends - 600 1,800 2,200 34.00 Other 1,143 - -_ - - 3,169 4,723 10,219 12,581 11,890 Long Term Liabilities Unsecured Income Notes 29,600 31,600 33,800 60,000 80,000 Unsecured Loans - 4,000 3,000 - 4,000 Secured Loans - - - - 2,902 Deferred Taxation 223 471 601 811 1,300 EIB Bond - - - - 14,323 CDC Loan - - - - 29,923 36,071 37,401 60,811 102,525 Share Capital 40,000 40,000 40,000 40,000 40,000 Reserves 632 671 1,512 1,609 1,894 40,632 40,671 41,512 41,608 41,894 Total LiabilitieB and Equit;r 73,724 81,465 89,132 115,000 156,309 EAPID June, 1979  TANGANYIKA DEVELOPMENT FINANCE C0AI'ANY LTD (TDFL) Actual and Projected Operations 1962 - 1983 (In She. 000's) Actual Projected 1962 - 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 A=QYALS Equity 18,858 2,800 6,900 3,400 7,123 16,430 30,000 33,000 32,000 31,500 33,500 Loans 70,086 12,800 23,932 25,642 38,542 40,923 60,000 67,000 68,000 68,500 66,500 TOTAL 88,944 15,600 30,832 29,042 45,665 57,353 90,000 100,000 100,000 100,000 100,000 CONIMTMENTS Equity 18,858 2,800 6,900 3,400 7,123 16,430 27,000 32,700 32,100 31,550 33,300 Loans 70,086 12,800 23,932 25,642 38,542 40,923 54,000 66,300 67,900 68,450 66,700 ~ TOTAL 88,944 15,600 30,832 29,042 45,665 57,353 81,000 99,000 100,000 100,000 100,000 DISBURSDENTS Equity 16,309 4,204 168 8,414 8,763 -9,383 16,050 25,933 30,182 31,689 32,316 Loans 51,249 19,450 5,833 9,232 14,360 39t219 44,731 56,699 64,809 66,603 67,921 TOTAL 67,558 23,654 6,001 17,646 23,123 48,602 60,781 82,632 94,991 98,292 100,237 Stj I,-  -32- ANNEX 6 TANGANYIKA DEVELOPNENT FINANCE COMPANY LTD (TDFL) Projected Income Statements (1979-1983) In Shs 000's 1979 1980 1981 1982 1983 INCOME Interest, Commitment and Appraisal Fees 11,048 15,781 20,961 26,141 30,758 Dividends 4,495 6,280 8,665 11,294 14,015 Directors and Management Fees 3,800 4,500 5,000 5,500 6,000 Rental Income 1/ 2,103 2,081 2,058 2,034 2,009 21,446 28,642 36,684 44,969 52,782 EXPENSES Administration 4,452 6,424 8,037 8,865 9,763 Depreciation 541 541 541 541 541 Finance Charges 10,091 12,203 14,302 18,290 20,858 15,084 19,168 22,883 27,696 31,162 Profit Before Tax 6,362 9,474 13,804 17,273 21,620 Tax 2,863 4,263 6,212 7,773 9,729 Profit After Tax 3,499 5,211 7,592 9,500 11,891 Provisions 1,216 1,653 1,900 1,966 2,005 Net Profit 2,283 3,558 5,692 7,534 9,886 Dividends 1,750 2,605 3,796 4,750 5,945 Retained Profit 533 953 1,896 2,789 3,941 1/ Net of maintenance expenses EAPID - June, 1979  -33- -33- ANNEX 7 TANGANYIKA DEVELOPMENT FINANCE COMPANY LTD (TDFL) Projected Balance Sheets (1979-1983) In Shs ooo's As of December 31 1978 1979 1980 1981 1982 1983 ASSETS Current Cash and Short Term Deposits 2,957 7,903 3,962 1,076 6,258 1,032 Debtors 8,258 8,258 8,258 8,258 8,258 8,258 Current Maturities Portfolio Loans 9,568 15,724 18,556 23,610 30,447 36,587 20,783 31,885 30,776 32,944 44,963 45,877 Portfolio Equity 45,140 61,190 87,123 117,305 148,994 181,310 Loans 84,193 113,200 151,643 192,842 228,998 260,332 129,333 174,390 238,766 310,147 377,992 441,642 Less Provisions 8,658 9,874 11,527 13,427 15,393 17,398 120,675 164,516 227,239 296,720 362,599 424,244 Net Fixed Assets 14,237 20,886 20,595 20,354 20,113 19,872 Staff Housing Loans 614 744 859 964 1,059 1,144 156,309 218.031 279.A69 350.,.